Being the early bird, quality services and European PV markets beyond the German feed-in tariff: An interview with Hanwha SolarOne EMEA VP and Managing Director Andreas Liebheit

Andreas Liebheit

Andreas Liebheit holds the position of Vice President and Managing Director of Hanwha SolarOne, Europe, Middle East and Africa (EMEA). Mr. Liebheit joined Hanwha SolarOne from Solon SE, where he was head of Business Unit Solar Modules, primarily in charge of sales, product development and supply chain management for the past three years.

Prior to that, Mr. Liebheit worked in various positions for Infineon AG. His final position in 2006 with Infineon AG was vice president of Sales and Business Development Security Products, where he was responsible for worldwide project development and application marketing for this division.

Solar Server: I note that Hanwha SolarOne had a difficult 2Q 2011, with declining revenues, shipments and margins, and yet your company continues its ambitious capacity expansions. What gives Hanwha SolarOne its optimism?

Andreas Liebheit: Hanwha SolarOne is in a special position as about 50% of our business is based on original equipment manufacturers (OEMs), which means we manufacture modules for large brand system integrators, which then resell these modules under their own label.

For Hanwha SolarOne, Q1 was very good. But the market did slow down during this period, leading to a lot of inventories building up with our OEM partners. And so, they were blocking our flow of revenues in Q2. But we expected that, and it has to do with the nature of our business.

However, the market is picking up, and the level of activity is improving very much compared to Q2 and in Q1. So now we see a good flow of revenues in the short term.

In the long term we are expanding because we feel that we are well positioned to develop a strong brand. We maintain an excellent position with our OEM partners, which is also a valuable testimony of our high level of quality. Our own brand definitely benefits from the trust shown by our OEM customers; it proves that we are a highly committed partner, focusing on customer value also in the long term. Furthermore, we are backed by the Hanwha Group, a large and financially very strong Korean conglomerate with high ambitions in the solar business. So this gives us a good position.

Solar Server: Any insights into what we should expect to see for shipments, revenues and EBITDA margin in 3Q 2011?

Andreas Liebheit: It's definitely increasing over Q2. We see more shipments than in Q2, it's swinging up, and we have probably a good revenue stream, the market is stimulated. What I also can say is that prices are still very much under pressure, we see price erosion. Obviously margin levels stay under pressure as well, even though costs positions are improving.

Solar Server: You mention price pressures. What are some of the strategies that Hanwha SolarOne is employing to adapt to the price pressures that are effecting the entire PV industry?

Andreas Liebheit: There are three points. The first point is, let's say, to anticipate certain price pressures, is to be an early bird, and by that, having the chance to close some deals using an attractive price, before there is even more competition on a specific project. The end investor might say that's what the deal is, I go with it, I close it now, and then this one is off. So it is a kind of early bird mechanism, where you might lock projects early on before it is a back and forth negotiation with a lot of competitors.

Second point is differentiating the product. Differentiating the product means mostly in these times, having different packages, to have concessions on extended warranties, on special quoting services, not only positive power sorting, but also current sorting and other types of sorting, including color sorting. But then also there are special insurances and so on. The module looks very similar to others, so you need the packaging of the product to make it special.

And the third point, obviously I mentioned it, is brand recognition, and we have heavily invested in our brand since we had the name change half a year ago. As an example, we had a very successful PVSEC in Hamburg beginning of September. Also, we are official club sponsor of the Hamburg soccer club HSV and are also sponsoring the U.K. soccer club Bolton Wanderers. So we are investing in our brand, brand recognition gives you a premium towards the others, and that is very obvious in the market.

Solar Server: In terms of the European market, I noted that the German market decreased to only 21% of sales in second quarter. It is also interesting to be talking about this at the time when Italy has just announced that it has become the largest PV market in the world.

Which European solar markets are Hanwha SolarOne looking at other European markets for expansion?

Andreas Liebheit: To answer your first question, and later I will come back to the German market, interestingly enough, our biggest point of sales from us to a partner, maybe a project developer or an EPC contractor, is Spain right now. So you will say, Spain, come on, there is no local market. But the Spanish EPCs, the Spanish solar players have learned from the past, and have achieved valuable know-how regarding export.

In 2008 the Spanish market collapsed, but the Italian market emerged, and ramped up. And I believe when you look at EPC constructions in Italy, the biggest share of EPC constructing might be with the Spanish companies. The experiences from the Italian market trained the Spanish companies in export, and that is exactly what they are doing right now for North Africa, Latin America, and even the U.S.A. If you follow the news Fotowatio US has just been sold to MEMC, that's a kind of Spanish story behind, if you like. We feel that the Spanish players are strong and we enjoy good sales in Spain, but then again, the modules are exported to Italy, Greece, Bulgaria and so on.

We also follow closely the development of some Eastern European markets, but it's not just one country, it's a set of countries, mainly Bulgaria, Ukraine, also Slovakia and Slovenia. Each separate market is small, but as a total, they are quite big.

We feel Greece is not doing bad, even facing the financial crisis; a lot of projects are moving forward. And then we see a lot of movement in South Africa at the moment, which will start up Q4 or next year, so that's a promising market. So these are our emerging markets, so to say.

Back to Germany we expect much more sales in Q3, Q4. The slow Q2 was due to the supply chain effect described previously, with our OEM partners and their built up inventories from Q1.

Solar Server: You mentioned Eastern European markets. What are some of the barriers to development in Eastern Europe, and what has your experience been working in Eastern Europe?

Andreas Liebheit: Most of the projects that are developed have to find investors, and investors are not so easy to get because the German bank landscape is pretty shy on solar investment in general, and it gets even more shy when it comes to countries like Bulgaria, where you have always the currency exchange rate risks, and countries like Ukraine where there are some political, small instabilities at the moment. So there are some risk factors.

All of the countries in Eastern Europe are culturally different from Western Europe; you have different decision flows, and different people to bring in the game to make decisions. So project development is much shakier and for someone who doesn't know the country, nearly impossible.

Those are definitely the key hurdles in Eastern Europe. And so companies who do not have access to strong local knowledge about players, as well as financial investors who are willing to do the equity invest, they probably have a problem to be active in Eastern Europe.

Coming back to Hanwha SolarOne, we have a broad network of partners in Eastern Europe, exploring and working for us in terms of project development. And we are backed by the Hanwha Group on the financial side. Hanwha is a huge company, the sixth biggest company in Korea, with a strong financial arm in life insurance, so from there we have the means of providing equity investments to projects which pass the due diligence. So in both ways we have tools to overcome the hurdles.

Solar Server: Overall, what do you see for the future of European PV markets in the next few years?

Andreas Liebheit: I may be more optimistic than some of the analysts; I have seen analyst reports which say in just two years from now the U.S. market will overtake the whole European market. But maybe it is my European soul in me which says, hmm, there are quite some favorable market conditions for the European market as well, so my personal view is that is stays for more than five years, the strongest market in the world, if you take the entire European Union, or the European continent.

I think that first, and it should not be underestimated, you have these political tendencies, especially in Germany but also other countries, people are really greenish and environmental flavored, so that they are very positive to investing in PV.

Another aspect is the established industry, especially in Germany, but also in Italy and Spain, so you have players who have gained experience in constructing, installing, managing a project and so on, and that is of great importance in these markets.

And third, we mentioned this earlier; the price pressure which hurts all manufacturers now has the upside that business cases get much more attractive. With the pricing we have today, we are able to go for a kind of Power Purchase Agreements (PPA) model, also in Europe, where the electricity generated by a solar plant is sold on a 20 year contract to a private industry.

So the price pressure reduces the dependency of the politically managed feed-in tariffs (FITs), and I think this is just what Europe needs, the independence of political funding is very important. And the good news is that with the price levels we see today, we are nearly there, in Southern European countries we already are.

And now, sales forces need to get into a retraining, we are no longer selling modules only under the FIT, we need to understand the PPA business model, self-consumption business model, and by this promoting projects independent of politics.

Solar Server: Is there anything about Hanwha SolarOne that we haven't talked about that you would like to share with our readers?

Andreas Liebheit: I talked about project differentiation earlier, for the short term it is definitely the packaging, the services around the product. But also testing services, quality services are very important. In 2010, there was still so much allocation in the PV market; demand was much higher than manufacturing capacity.

And what happens in these overheated markets is that bad quality gets into projects. So now a lot project owners look precisely at what they have bought in 2010, and they see quality issues. With increased competition, the demand for pre-cautioned quality monitoring measurements is getting more and more important. Examples of test are Electroluminescence pictures on 100% rate, or infrared pictures from each module on a very large statistic, or any kind of special test such as cross-linkage or so on.

Hanwha SolarOne has both the expertise and the necessary equipment to do these tests, as advanced quality procedures have always been a part of our OEM production. And Hanwha SolarOne is very willing to bring these services also to customers who are buying a Hanwha SolarOne product. This is one service we offer that really differentiates us from other competitors.

Another important aspect I would like to mention is product innovation. At the moment everybody sells, we call it bread and butter modules, but there is so much potential for innovative solutions. Examples are systems for buildings that cannot stand the heavy load of a classical module system, like the halls of logistics companies or large supermarkets.

There is a lot of free space available also in Germany on these light-weight halls, and if you manage to get the right product ready for that, then you open up a new niche market. Hanwha SolarOne is looking into these applications. The mainstream business will remain the largest market, but these niche markets are very attractive too, and this is a potential we are exploring.